UK's proposed carbon tax on imports receives a cautious welcome from tax experts

In response to the UK carbon border adjustment mechanism (CBAM) consultation, the Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) emphasised the importance of supporting climate objectives whilst balancing the administrative burden for businesses.  

A proposed UK CBAM¹ would mean certain goods arriving in the UK from 2027 may be subject to a new tax charge, to level the playing field with domestic production² and to encourage greener manufacturing. 

The proposed CBAM would impose a tax charge on seven types of goods³ arriving in the UK, including fertilisers, cement and aluminium, based on their embedded greenhouse gas emissions. Affected importers will either report those emissions based on ‘default values’ set by the government for each commodity type, or by calculating the actual emissions produced in creating the goods. 

Mark Feldman, co-chair of the joint CIOT/ATT Climate Change Working Group⁴, said:

“Most importers affected are likely to initially use default values, at least while they work out how to measure the actual emissions produced in their supply chains. But if the government sets the default values too low, importers may decide it’s cheaper and easier to pay the CBAM charge based on default values than it is to either calculate the actual emissions produced or to decarbonise their supply chain, so getting those default values right will be critical to incentivise businesses to move away from carbon-intensive imports.

“The CBAM compliance burden is likely to hit small businesses the hardest. Therefore, it's vital the government minimises the impact if the proposal proceeds.”

Feldman explained:

“Anyone importing less than £10,000 of CBAM goods won’t be affected by the measures, but we urge the next government to look again at how that exemption will work. As proposed, if your imports in the previous 365 days go over £10,000 you’ll need to register for CBAM, but that means businesses will need to look at their import records every day to check whether they’ve breached the threshold. 

“Aligning CBAM with the registration requirements used for VAT and Plastic Packaging Tax would simplify processes and reduce hassle for importers – that would still mean checking the value of your imports against the registration threshold over the past year, but on a monthly basis instead of daily, as the current CBAM proposal would require.

“Businesses importing goods into both the UK and EU need to be aware of differences between the EU's CBAM regime and the proposed UK scheme⁵, complicating compliance. The UK scheme will cover different goods and use a levy system, which is simpler than the EU's emissions certificate requirement⁶. Additionally, the EU's CBAM will be fully operational a year before the UK's, which will impose tax liabilities from the outset without a reporting-only phase⁷.”

The CIOT would also like the government to provide certainty to businesses on how the CBAM will operate for goods arriving into Northern Ireland, given it was not covered by the Windsor Framework. 

Notes for editors

1. The Government issued a Consultation on the introduction of a UK carbon border adjustment mechanism on 21 March 2024, which closed to responses on 13 June. The CIOT has published its response to the Consultation
2. The proposed CBAM default rates would set an import price equivalent to the carbon price faced in the UK by domestic producers. The UK CBAM rate would be calculated based on the UK Emissions Trading Scheme prices for the preceding quarter, subject to adjustments as detailed in Figures 7 and 8 of the Consultation document). 
3. As proposed, the UK CBAM would apply to imports of: aluminium, cement, ceramics, fertilisers, glass, hydrogen and iron/steel. Details of the commodities in scope are in Annex A of the Consultation document. 
4. The Climate Change Working Group (CCWG) is a joint initiative by two tax professional bodies – the Chartered Institute of Taxation and the Association of Taxation Technicians. CCWG brings together experts in taxation issues relating to climate matters to strive for improvements in the design and administration of these ‘green taxes’ in support of each body’s charitable objectives. 
5. Differences in the scope of goods covered by the EU CBAM and proposed UK CBAM are as follows: UK CBAM proposed to include ceramics and glass (which are not covered by EU CBAM); EU CBAM covers electricity (which is not covered by proposed UK CBAM). 
6. From 1 January 2026, those importing certain goods into the EU will need to surrender enough EU CBAM certificates (bought from their national authorities) to cover their reported emissions on affected imports. Further details of the EU CBAM are available here. 
7. The EU CBAM began on 1 October 2023, with a reporting only phase through to 31 December 2025.